East Village Community Coalition

There is an organization in the “East Village” called the East Village Community Coalition. I don’t know how long they’ve been around, but a whois search shows their web site was created on 08-Jun-2004, so it’s probably safe to assume they came into being some time around then.

They’re pretty secretive, too. Their registrant, admin, and tech contacts are masked. But that’s not why I’m writing about them. I want to discuss their
Guide to East Village Local Shops.

This is from their web site:

evcc-shopping-guide

Point by point:

Choose creativity and personality over uniformity – If you shop in one place because you like the color of the paint, or don’t shop in another because you don’t like the awning, it’s all the same. Besides, many local shops show neither creativity nor personality, and uniformity, in itself, is not a bad thing. And there are plenty of chain stores that vary their appearance. I suspect there will be more of this in the future, as they try to meet the demand for this type of “creativity and personality”.

Provide economic diversity and stability – It makes no sense to speak of “economic diversity” within such a small area. A country might have economic diversity, even a city, but when you break it down to ever-smaller localities, like neighborhoods, you can’t maintain this. It makes no sense, under any mode of production, to have manufacturing, distribution, retail, finance, agriculture, etc., all in one square block.

I doubt that the EVCC really expects manufacturing or agriculture to exist here. They understand the division of labor. They’re talking about retail only, which means that they want to take the level of productive forces as they’re given, and freeze them there.

Keep more of your money in your community – Does shopping locally keep money within the community? Leaving aside for now what “the community” really is, let’s set the boundaries as Houston Street on the South, 14th Street on the North, the East River on the East, and Third Avenue on the West. Imagine this is a closed system, with no money coming in and no money going out. (If the “East Village” were actually isolated from the rest of the global economy, it would die off in no time. Still, for the sake of argument, let’s imagine this.)

All value, in the capitalist sense, is created within this closed system. No money/resources/people come in or go out, and everything functions under the capitalist mode of production. People go to work and make commodities that are sold only inside these boundaries – wages to the workers, profits to the owners. Right away you can see, in a very short time, there would be a crisis of overproduction. Assuming everyone can buy one of everything produced on their wages, once they have what they need they won’t need more. The producers would have to look outside these boundaries to sell their wares, and the local paradigm is demolished. This is essentially the national economy, reduced to the area described above.

And what about the surplus population? There are not enough jobs provided by the local businesses in the “East Village” for everyone who lives here. People will have to emigrate to other neighborhoods and send money back home. Which is, of course, what actually happens. Almost no one who lives in this geographical area works here. While the EVCC tells us to keep the money in the neighborhood, they couldn’t survive without its coming from outside the neighborhood.

Which is a good thing, because it’s the retailers themselves who are sending the money out! Since there is no manufacturing or agriculture here, local retailers sell commodities manufactured somewhere else, or with raw materials originating somewhere else, whether it’s tchotchkes at Alphabets or coffee at Mud.

The first section of EVCC’s Guide is Cafes. Cafe types, and some of their non-local ingredients, are:

Cafe Type Imports
Bakeries Butter, Flour, Sugar
Cafes Coffee
Candy & Chocolate Chocolate, Sugar
Ice Cream Eggs, Milk, Sugar, Vanilla
Juice Bar Fruits, Vegetables
Tea Shop Honey, Sugar, Tea

 
The next section is Fashion. Most of the retailers don’t make what they sell: Dinosaur Hill, Jane’s Exchange, Village Kids Footwear, etc. It’s possible that some others do, but they don’t make the sewing machines or material or thread. The other categories are: Galleries; Gifts; Florist; Health and Beauty; Culture, Music, Entertainment; and Specialty Services. It’s the same with all of them.

Create local jobs with fair living wages – The U.S. Bureau of Labor Statistics (BLS) shows little variation in pay for professionals and managers by establishment size, but differentials widen as you move down the status hierarchy. Data entry clerks in small establishments earned 7% below the national average, while those in large firms earned 20% above. Gaps for janitors were wider, and those for laborers were wider still.

This fact persists regardless of occupation, industrial sector, education, experience, geographical location, union status. Workers in larger firms are more likely to be covered by company-paid health insurance and have some type of retirement plan. Also, worker safety is worse in small businesses — “Size and risk are inversely correlated at all levels of scale,” according to an International Labour Organization report.1

Sustain small business owners who strengthen the local economy – Redundant.

People who make the claims made by EVCC like to point to studies that show how much money stays in the community with small business than with larger businesses. One study conducted in Chicago found that for every $100 spent by customers, $43 stayed in the area for chains, while $68 stayed in the area for non-chains. One problem with this is that the geographical boundaries were the entire city of Chicago, so money that moved from a poor neighborhood to a richer neighborhood was still considered to be “local”. Likewise with the “East Village”. Many of the owners/workers do not live here. The money they make leaves the neighborhood daily.

A bigger problem is that this is only a measure of profits. For the chain, some part of the profits, or even gross revenue, is sent to the corporate office, leaving the manager with less to spend than the owner, but this assumes that the owners spend all their profits. Owners reinvest profits, or they use them to pay their more-expensive mortgages or vacations or restaurant bills. The argument ultimately centers on filling the capitalist class’s luxury-goods market, something that doesn’t even exist in the “East Village”.

Defend our neighborhood’s identity – Is the neighborhood’s identity really defined by its retail shops? This is definitely a petite-bourgeois perspective! Anyway, this neighborhood’s identity was defined by the real estate industry, not the retail industry. The term “East Village” was coined by real estate developers in the 1960s as a way to attract renters, by linking the area above Houston Street with Greenwich Village, and disassociating it from the Lower East Side’s immigrant, working-class roots.

Fight the lie that “low prices” at chain stores makes up for the loss of local business ownership – Low prices benefit workers, local business ownership benefits owners. Welcome to the class struggle.

***

A few things about small businesses that I’ve written about before, but which bear repeating:

Unemployment Insurance – If employees are paid in cash, there is no record of their employment, making it impossible for them to collect unemployment when they lose their job.

OSHA Requirements – If a company has fewer than 25 employees, their penalty is cut by 60 percent. If the business has fewer than 10 employees, they’re exempt from many requirements that obligate them to report workplace injuries.

Discrimination Laws – Federal laws against discrimination in the workplace do not always apply to small businesses. Title VII of the Civil Rights Act of 1964 and Title I of the Americans with Disabilities Act apply to employers with 15 or more employees. The Age Discrimination in Employment Act applies only to employers of 20 or more people.

Employee Health Insurance – Beginning in 2014, employers will be expected to pay a “shared responsibility fee” for health insurance coverage under the terms of the Affordable Care Act. Small businesses are exempt from this rule. If the company has fewer than 50 employees, they have no healthcare responsibilities.2

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1The Small Business Myth
2Small Business Exemptions

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Capital Devalorization in the Inner City

This follows up on Investment in the Built Environment — Prologue, but I changed the title to “Capital Devalorization in the Inner City”.

The physical deterioration and economic devalorization of inner-city neighborhoods is a strictly logical, “rational” outcome of the operation of the land and housing markets. What follows is a rather schematic attempt to explain the historic decline of inner-city neighborhoods in terms of their institutions, actors, and economic forces involved. We might think of this explanation as a production-side corrective to traditional “filtering” theory. … It is assumed from the start that the neighborhoods concerned are relatively homogeneous as regards the age and quality of housing, and, indeed, this tends to be the case with areas experiencing redevelopment.

When a neighborhood is newly built the price of housing reflects the value of the structure and improvements put in place plus the enhanced ground rent captured by the landowner. But eventually sustained devalorization of neighborhood housing can take hold. This has three sources: advances in the productiveness of labor (allowing a similar structure to be produced at a lower value than was previously possible); style obsolescence; and physical wear and tear.

Clearly, property owners in many neighborhoods succeed in making major repairs and maintaining or even enhancing the value of an area’s housing. These areas remain stable. Equally clearly, there are areas of owner-occupied housing which experience the first stage of devalorization. Homeowners, aware of imminent decline unless repairs are made, may sell out and seek newer homes where their investment will be safer. At this point, after a first or subsequent cycle of use, there is a tendency for the neighborhood to convert toward a higher level of rental tenancy unless repairs are made. And since landlords use buildings for different purposes than owner-occupiers, a different pattern of maintenance will ensue. Owner-occupiers in the housing market are simultaneously both consumers and investors; as investors, their primary return comes as the increment of sale price over purchase price. The landlord, on the other hand, receives his or her return mainly in the form of house rent, and under certain conditions may have a lesser incentive for carrying out repairs so long as he or she can still command rent. Since the transition from owner-occupancy to tenancy is generally associated with a declining market, some degree of under-maintenance could be expected. With sustained under-maintenance in a neighborhood however, it may become difficult for landlords to sell their properties, particularly since the larger financial institutions will now be less forthcoming with mortgage funds; sales become fewer and more expensive to the landlord. Thus, there is even less incentive to invest in the area beyond what is necessary to retain the present revenue flow. This pattern of decline is likely to be reversed only if a shortage of higher-quality accommodations occurs, allowing rents to be raised and making improved maintenance worthwhile. Otherwise, the area is likely to experience a net outflow of capital, which will be small at first since landlords still have substantial investments to protect. Under these conditions it becomes very difficult for the individual landlord or owner to struggle against the economic declining which they have helped to induce. House values are falling and the levels of capitalized ground rent for the area are dropping below the potential ground rent (see Figure 3.2). The individual who did not under-maintain his property would be forced to charge higher than average rent for the area with little hope of attracting tenants earning higher than average income which would capitalize the full ground rent.

newurbanfrontier-3.2
Figure 3.2 The devalorization cycle and the evolution of the rent gap.

Real estate agents exploit racist sentiments in white neighborhoods that are experiencing declining sale prices; they buy houses relatively cheaply, and then resell at a considerable markup to African-American, Latino or other “minority” families, many of whom may be struggling to own their first home. [P]roperty values are usually declining before blockbusting takes place and do not begin declining simply as a result of racial changes in ownership. Once blockbusting has taken place, however, further decline in house values is likely, not just because of the racism of the housing market but also because of the inflated prices at which houses were sold and the consequent lack of resources for maintenance and mortgage payment suffered by incoming families.

Under-maintenance gives way to more active disinvestment as capital depreciates further and the landlord’s stake diminishes: house value and capitalized ground rent fall, producing further decreases in sale price. Disinvestment by landlords is accompanied by an equally “rational” disinvestment by financial institutions, which cease supplying mortgage money to the area. … In addition to mortgage redlining, there is also redlining on the part of homeowner insurance companies, which further induces economic disinvestment. What loans do occur at this stage allow properties to change hands but do little to encourage reinvestment in maintenance so the process of decline can simply be lubricated. Vandalism, sub-dividing of apartments, and refusal to make any repairs soon follow.

When landlords can no longer collect enough house rent to cover the necessary costs (utilities and taxes), building are abandoned. This is a neighborhood-scale phenomenon: the abandonments of isolated properties in otherwise stable areas is rare. Much abandoned housing is structurally sound, which seems paradoxical. But then buildings are abandoned not because they are unusable, but because they cannot be used profitably At this stage of declining, there is a certain incentive for landlords to destroy their own property through arson and collect the substantial insurance payment.

Gentrification is generally preceded by such a cycle, although the process need not occur fully for gentrification to ensue. … The objective mechanism underlying filtering is the depreciation and devalorization of capital invested in residential inner-city neighborhoods. This devalorization produces the objective economic conditions that make capital revaluation (gentrification) a rational market response. Of fundamental importance here is what I call the rent gap.

The rent gap is the disparity between the potential ground rent level and the actual ground rent capitalized under the present land use. As filtering and neighborhood decline proceed, the rent gap widens. Gentrification occurs when the gap is sufficiently wide that developers can purchase structures cheaply, can pay the builder’s costs and profit for rehabilitation, can pay interest on mortgage and construction loans, and can then sell the end product for a sale price that leaves a satisfactory return for the developer.

The process is initiated not by the exercise of individual consumer preferences, but by some form of collective social action at the neighborhood level. The state, for example, initiated much of the early gentrification in the US as a continuation of urban renewal projects, and though it plays a lesser role today, state subsidies and sponsorship of gentrification remain important. More commonly today, with private-market gentrification, one or more financial institutions will reverse a long-standing redlining policy and actively target a neighborhood as a potential market for construction loans and mortgages. All the consumer preference in the world will amount to naught unless this long-absent source of funding reappears; mortgage capital, in some form or another, is a prerequisite.

Three kinds of developers typically operate in recycling neighborhoods: (a) professional developers who purchase property, redevelop it, and resell for profit: (b) occupier developers who buy and redevelop property and inhabit it after completion; and (c) landlord developers who rent to tenants after rehabilitation. … Professional and landlord developers are important … but occupier developers are more active in rehabilitation than they are in any other sector of housing construction. Since the land has already been developed and an intricate pattern of property rights laid down, it is not always easy for the professional developer to assemble sufficient land and properties to make involvement worthwhile. The fragmented structure of property ownership has made the occupier developer, who is generally an inefficient operator in the construction industry, into a plausible vehicle for remaking devalorized neighborhoods.

Gentrification is a structural product of the land and housing markets. Capital flows where the rate of return is highest, and the movement of capital to the suburbs, along with the continual devalorization of inner-city capital, eventually produces the rent gap. When this gap grows sufficiently large, rehabilitation (or, for that matter, redevelopment) can begin to challenge the rates of return available elsewhere, and capital flows back in. Gentrification is a back-to-the-city movement all right, but a back-to-the-city movement by capital rather than people.

* * *

Definitions

House Value
It will be necessary to separate the value of a house from its price. Only in the marketplace is value translated into price. And although the price of a house reflects its value, the two cannot be mechanically be equated since price (unlike value) is also directly affected by supply and demand conditions. Thus value considerations set the level about which the price fluctuates. Now with housing the situation is further complicated insofar as individual houses return periodically to the market for resale. The house’s value will also depend, therefore, on its rate of devalorization through use, versus its rate of revalorization through the addition of more value. The latter occurs when further labor is performed for maintenance, replacement, extensions, etc.

Sale Price
A further complication with housing is that the sale price represents not only the value of the house, but an additional component for rent since the land is generally sold along with the structures it accommodates. Here it is preferable to talk of ground rent rather than land value, since the price of land does not reflect a quantity of labor power applied to it, as with the value of commodities proper.

Capitalized Ground Rent
Ground rent is a claim made by landowners on users of their land; it represents a reduction from the surplus value created over and above cost price by producers on the site. Capitalized ground rent is the actual quantity of ground rent that is appropriated by the landowner, given the present land use. Thus, assuming for the moment an equation between price and value, sale price = house value + capitalized ground rent.

Potential Ground Rent
Under its present use, a site or neighborhood is able to capitalize a certain quantity of ground rent. For reasons of location, usually, such an area may be able to capitalize higher quantities of ground rent under a different land use. Potential ground rent is the amount that could be capitalized under the land’s “highest and best use” (in planners’ parlance) — or at least under a higher and better use. This concept is particularly important in explaining gentrification.

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Neil Smith, The New Urban Frontier (London/New York: Routledge, 1996) 61-71.

Investment in the Built Environment — Prologue

I posted a version of this in the afternoon of February 22, but a few hours later I reverted it to Draft status. It was just a series of mostly-disconnected, extended quotations, and I don’t want my posts to be just a series of mostly-disconnected, extended quotations. They need to be able to stand on their own.

This is where my whole blogging problem starts to manifest itself. On the one hand, I want the blog to be focussed and informative. At the same time, I’d like to be able to just post longer-than-Tweet pieces on things I’m interested in — books I’m reading, or the fact that I’m listening to James Irsay sitting in for Chris Whent on Here of a Sunday Morning, analyzing Chopin etudes — without them being particularly informative.

Also, because I now have five followers (!), I feel that I owe them something. The problem is, I don’t know what exactly.

I had the same problem years ago, before the innernet. A friend of mine and I wanted to put together a literary magazine. Not like Paris Review, but fiction and poetry that we and our friends wrote, but I didn’t know how to approach it. On the one hand, I wanted it to be serious, so I wanted it to look nice. Of course, a serious literary magazine that looks nice is like the Paris Review, and is expensive to produce and distribute. These things are usually the pet projects of the idle rich. The other idea was to put together something more along the lines of Ray Gun, or any number of local mimeographed booklets circulating in the neighborhood. I really didn’t like this idea though. I hated Ray Gun’s typography. However, the benefit of this method was that it didn’t have to look “nice,” and it would be easy to reproduce and distribute because I could run them off on the copier at work and we could put them on the consignment shelf at St. Mark’s Books, and distribute them by hand.

The result was that we collected enough to put out our first edition, but it never happened because I couldn’t decide what it should look like. In retrospect, we should have gone with the low-fi version. Work with what you’ve got.

End of Prologue.